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Swallowing Pepsi Blue

Should we call Poison Control on the beverage giant?

You never forget your first Pepsi Blue. Earlier this summer, I was with my eldest son at our local Blockbuster store, when an employee came storming in from his break, chugging what appeared to be a bottle of Windex. Now, despite what My Big Fat Greek Wedding may have you believe about the healing powers of Windex, rest assured that no one should down glass cleaners.

"This stuff is terrible," he said, capping it and slamming it down behind the counter. It wasn't Windex. It was Pepsi Blue. The incident was so jarring to my 8-year-old son that he had no interest in trying Pepsi's latest tinted brew until just last week. And if my son, whose gullibility is a marketer's dream, can't be swayed, I'm not banking on Pepsi Blue to outlast the lifespan of Crystal Pepsi.

The fact that Pepsi(NYSE: PEP) embarked on nine months of testing to arrive at Pepsi Blue, putting teens through 100 different cola formulas is troublesome. Was the green-colored Pepsi Palmolive too "off the hook" for these young 'uns? I find it hard to believe that 99 flavor combinations are worse than Pepsi Blue. The berry-fueled soda did little for me. My wife found it uninspiring, comparing it to a melted Slurpee. And she was being kind. The unfinished bottle we sampled sits in our fridge, going flat and lending color.

It's not Windex, but I have to wonder which genius signed up California rockers Papa Roach to promote the new product line. Does anyone at Pepsi realize that the band's first hit single was about suicide? Is this Pepsi's last resort?

Then again, Pepsi has pretty much written the book in terms of poor celebrity-endorsement deals. Last week, the company pulled its ads starring Dirty South rapper Ludacris. Apparently the company didn't know the tunes are offensive to women or that the parental advisory label on Word of Mouf actually means something. That's ludicrous! Some can argue the same thing about Pepsi spokeswoman Britney Spears, adding insult to injury by being additionally offensive to eardrums. Then again, this happened to Pepsi a dozen years ago, when Madonna pitched its carbonated pop. When you want to reach a younger audience, you're often left rolling the dice in terms of pop culture with unsavory stars, who have an entirely different definition of Frito-Lay.

Sure, Pepsi's move to cross multi-cultural lines in its marketing recently is commendable. Landing up-and-comers like Bernie Mac, Shakira, and Halle Berry to swig Pepsi in televised spots is just good business and better judgment. But what's the deal with the blue soda, and will it blow up in Pepsi's face like an ill-advised Michael Jackson ad shoot?

Sure, it could work on a small scale. Traditional amusement-park buffs relish drinking blue birch beer at Knoebel's, and you can spin the color spectrum with Jones Soda to come up with something really outlandish. But these companies don't have 15 different brands pulling in a billion dollars apiece in retail sales. It was easy to forgive the company when it launched its Mountain Dew brand in a Shirley Temple-red color. That made sense. No one has ever called Poison Control after chugging a shot of grenadine. But why give a green light to liquid Smurf?

There's also the stumbling block of using Blue 1 to give the berry cola its Windex shine. I didn't think much of it until the official Q&A at the Pepsi Blue site posed the following question: Is Blue 1 safe? Wasn't there something about that on the Internet?

Sure enough, punching in "Blue 1" and "unsafe" into Google spat back hundreds of references to the toxicity of the coloring dye. However, most of them were simply regurgitating the same text, supposedly pulled from the March 1999 Nutritional Action Healthletter. Searching the site turned up empty. Is it a hoax, perpetuated by the viral nature of the Internet? Pepsi dismisses the claim as inaccurate, and it's easy to stand by the company on this one. Its own Fruit Works non-carbonated line has used Blue 1 for some time, and no one's sprouting a third eyeball. But if that's a wall of worry to climb, in terms of marketing the fizz to the wired youth of America, Pepsi better be ready to clear the hurdle with a sprinter's panache.

Then again, the fact that Pepsi has so many sweet, salty, and syrupy horses in its stable goes to show how little is riding on the success, or lack thereof, of Pepsi Blue. It also keeps a leash bolted to terra firma's spike when it comes to assessing a massive conglomerate's realistic growth potential. Like Coca Cola(NYSE: KO), the beverage giants can tweak the formulas and the color charts -- even do the uncanny, like load up drinking water with vitamins -- and you're still talking about low, single-digit growth in global-unit volume, at best.

Pepsi's international beverage revenue has actually clocked in lower so far this year. The soft-drink giants that figured global real estate would take kindly to soda machines never bargained for Americana boycotts in the Middle East and economic chaos in Argentina.

Still, Pepsi's brand arsenal has served it well, relatively speaking. Whereas annualized revenue growth has come in at a meager 6% over the last five years, that's actually "speed demon" territory compared to Coke and its snail-like 1.5% top-line growth over the same period of time. And, to Pepsi's credit, it's milked its margins to keep profits growing faster than revenue. As a matter of fact, even though the stock is tickling 52-week lows right now, Pepsi is still poised to nail its third consecutive year of double-digit growth in operating profits.

The company's 1.5% yield, beyond rivaling the typical money market fund right now, accompanies the nudge-and-wink promise that comes from any company that has hiked its dividend every year.

Fetching less than our cost basis since we first bought in two years ago, is it time to add to our Pepsi holding, or are there other, more compelling values in the Drip universe right now? With the market viewing the company through Blue-colored glasses, I can set aside my palate's palette of artistic differences in the new soda rollout if the valuation is right and the prospects bright. At less than 20 times this year's earnings and with a healthy streak of double-digit earnings growth, the Drip Port can certainly do worse.

While it would be easy to play on the literary symbolism of introducing a product labeled Blue, why dwell on the sadness when I can allude to the name of the city in New York from which Pepsi hails. You know -- Purchase.

Rick Aristotle Munarriz thinks the remnants of Pepsi Blue look awfully cool in his fridge, the way the refrigerator light shines through them and all. Still, he's not going to finish the bottle. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.